The Hart Company sells and delivers office furniture in Sudbury. Here are the costs associated with...

The Hart Company sells and delivers office furniture in Sudbury. Here are the costs associated with the acquisition and operation (on an annual basis) of a delivery truck.

Insurance	1 750 $
Permit	250
Registration	150
Rent of the garage for parking (per truck)	1 350
Amortization (30,000 ÷ 5 years) *	6 000
Gasoline, engine oil	0,16 $ kilometer

* depending on the service life

Work to do :

a) Suppose the Hart Company bought a truck and it drove 50,000 kilometers in the first year. Calculate the average cost per kilometer of owning and operating this truck.

b) At the start of the second year, the company wonders whether it should continue to use the truck or leave it in the garage and entrust all its deliveries to specialist companies. (The government requires payment of license fees for vehicles even if they are not in use.) What costs from the previous list are relevant to this decision? Explain your answer.

c) Suppose the company decides to use the truck in the second year. Towards the end of the year, she receives an order from a customer who lives more than 1,000 kilometers away. Which costs from the previous list are relevant in the decision to use the truck to make the delivery or to entrust this task to a specialized company? Explain your answer.

d) Sometimes the company needs two trucks at the same time. Management is considering the possibility of purchasing a second. The total number of kilometers driven would be the same as for one of these vehicles. Which costs from the previous list are relevant in deciding whether or not to buy this second truck? Explain your answer.

Answer all the questions please

Solutions

Expert Solution

CALCULATION OF TOTAL COST FOR ONE TRUCK

INSURANCE	$ 1750
PERMIT	250
REGISTRATION	150
RENT OF GARGAGE FOR TRUCK	1350
AMORTISATION	6000
GASOLINE, ENGINE OIL	0.16
TOTAL	9500.16

A) Average cost for truck

(1750+ 250+150+1350+6000+ 8000)/2= 8750

B) The Govt.requires to pay the license fees for vehicles that use or not it is the reason that the company should run the vehicle for their deliveries. Other wise they pay the amount $250 Permit, 1750 for insurance and gargage rent 1350 are financial loss to the company.

C) for 1000 kilometer Delivery the company meet $ 150 for gasoline / Engine oil for running expense and fixed expenses are a small part of it . The expenses are affordable by the company.

D) The company take buy or not decision depending on the toatal maintaing cost of the remaining truck.Total cost for a truck for one year $9500.16. This amount is admissible in nature and I think they buy the truck for thier delivery purpose.

ekkarill92 answered 1 year ago

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